Public Bill Committee

[Mr. Roger Gale in the Chair]

Schedule 6

The Personal Accounts Delivery Authority

Nigel Waterson: I beg to move amendment No. 16, in schedule 6, page 59, line 13, leave out from ‘contain’ to ‘of’ in line 14 and insert—
‘a majority of persons who are either members or employees’.

Roger Gale: With this it will be convenient to discuss amendment No. 17, in schedule 6, page 59,line 18, leave out paragraph 10.

Nigel Waterson: Good morning, Mr. Gale. I shall deal briefly with the amendments. May I say at the outset that they are not at the epicentre of the Opposition’s strategy on the Bill, in case the Minister was worried? They deal with two small points—you might even say they were niggling if you were in a churlish mood, Mr. Gale—and probe the Government’s position on committees.
Of course we accept that the delivery authority will have committees, and possibly even sub-committees. I cannot remember the Minister’s exact phrase, but he said in an earlier debate that the system would be “lean and mean”. It will be a smallish, focused body if it does its job properly, and it will have a relatively short life. It therefore seems a little counter-intuitive for it to be weighed down by a system of committees and sub-committees. The point behind amendment No. 16 is therefore simple: the requirement that
“at least one person who is either a member or an employee of the Authority”
serve on a committee will not necessarily provide the control over burgeoning bureaucracy that we seek. The probing amendment proposes that a majority of committee members should be members or employees of the authority, so that they can control matters and ensure that any relevant outside expertise is drawn into the committee.
Paragraph 10 would be removed by amendmentNo. 17, because committees are one thing and sub-committees are quite another. We hope that the authority will not become a burgeoning leviathan—it should have a short, focused life if it does its job properly.
 The Minister for Pensions Reform (James Purnell) rose—

Nigel Waterson: I am fascinated to hear what the Minister has to say in defence of the blatantly bureaucratic provisions in the schedule.

James Purnell: May I say what a pleasure it is to serve under your chairmanship, Mr. Gale, and to have a majority of the Government Members in attendance to discuss amendments that could be described as important or, indeed, niggling? As we have said a number of times—in fact, ad nauseam—the Bill establishes an advisory authority, bringing on board relevant knowledge and professional expertise. Are visual aids allowed in the Committee, Mr. Gale?

Roger Gale: Order. There is something called the Nelson touch, Minister.

James Purnell: As a normal part of its governance arrangements, the authority will set up audit, remuneration and nominations committees. We are making provision, too, so that it can set up other committees and sub-committees. The board needs maximum flexibility both to draw on relevant skills and expertise and to set up committees when it believes that it would be helpful to do so. The main purpose of setting up the delivery authority is to bring in such skills, so restricting the board’s ability to set up committees and sub-committees would reduce that flexibility.
I do not know what else I can say to reassure the hon. Member for Eastbourne. We want to bring in advisers so that the authority can do its work, and its normal work requires the establishment of committees and sub-committees, including remuneration and audit sub-committees. Some of them may not require a majority of people from the board; for example, a committee on socially responsible investment may want to advise the authority and would not necessarily need a majority of people from the authority. The schedule provides the right level of accountability by requiring at least one member to be appointed from the authority. Unless the hon. Gentleman wishes me to give him further comfort on specific matters, that is as much as I can say, so I urge him to withdraw the amendment.

Nigel Waterson: That was a pretty feeble set of arguments, but I am in a magnanimous mood, so I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Nigel Waterson: I beg to move amendment No. 18, in schedule 6, page 62, line 28, at end insert—
‘18A Such grants shall be classified as—
(a) policy grants; or
(b) operational grants.
18B (1) Policy grants shall be used in support of the Authority’s work on advising on preparing for the implementation of, or the modification of, any relevant proposals about personal accounts.
(2) Policy grants shall not be made more than two years after the commencement of this Act.
18C Operational grants shall be used in supportof the Authority’s work in preparing for the implementation of proposals for personal accounts.’.

Roger Gale: With this it will be convenient to discuss amendment No. 19, in schedule 6, page 62,line 34, at end insert—
‘(2A) A statement under sub-paragraph (1)(b) must show separately the purposes to which policy grants and operational grants have been applied.
(2B) A statement under sub-paragraph (1)(b) must show the interest charges that would have accrued on the operational grants if they had been loans taken out at commercial rates of interest.’.

Nigel Waterson: These amendments, too, are relatively modest, but there is a serious purpose behind them. They were tabled at the behest of the Association of British Insurers, and with its encouragement. Together, they are designed to tackle the possibility of cross-subsidisation in the setting up of personal accounts.
The ABI says that it is vital that there is a level playing field between personal accounts and existing workplace provision. It points out the danger thatthe Government could subsidise the setting up and administration costs of personal accounts by omitting to impose strict limits on the funding for the delivery authority. It argues, too, that Government subsidies for personal accounts would undermine existing provisions and be unfair on taxpayers, employers who provide good schemes and the workers who pay in to them. I shall have more to say later this morning about the effect of the proposals on existing pension provision, so I shall not develop that argument now. The ABI says that the purposes for which state funding to the delivery authority are used should be strictly limited to policy functions in designing the shape and structure of personal accounts.
The regulatory impact assessment states that£21 million has been set aside for the delivery authority. Can the Minister confirm that that is the limit of the taxpayer’s commitment to the delivery authority? If not, under what circumstances would it change during the authority’s relatively short life? The Bill gives the Secretary of State the power to make grants to the authority, but it does not set limits on what parts of its work can be funded by the Government. The vast majority of the expenditure on setting up and administering personal accounts will occur after the next Bill is enacted in due course, but both the ABI, representing its many members, and the Opposition would like the Minister to give a commitment today that there will be no state subsidy of personal accounts. 
Amendment No. 19 deals with the separate but related issue of the delivery authority borrowing at commercial rates to cover set-up costs in the early years of the scheme that are not covered by the charges. That is a fall-back position, and I hope that the Minister will tell the Committee that, in the absence of a wholly unexpected and unforeseen occurrence, the £21 million will adequately cover all the authority’s costs during its lifetime and that the ongoing cost of operating the personal accounts system will be a matter for its successor body. I hope that I have set out clearly the nature of the amendments which, as the ABI says, are designed to produce a level playing field, and are not gratuitous measures designed to make life difficult for the delivery authority.

James Purnell: This is an important debate, but it mostly concerns the next stage in the development of the delivery authority. At this stage, the authority will merely advise the Government, so the question of spending costs on personal accounts is theoretical, not practical. It is important that we debate this matter, however, and at the appropriate time, it is important that the delivery authority and the personal accounts board comply with state aid rules and measures laid down by the Treasury on the use of public money in such situations so that they provide value for money for the taxpayer.
I hope that I can reassure the hon. Member for Eastbourne that those matters will be looked at properly after they are flagged up in the consultation on the White Paper, and during consideration of the next Bill. However, in the authority’s current phase, the key issue is what kind of work it does. It will give us advice, so it is right that that worked is funded by grant in aid. The Government’s intention is that in the long term the operation of personal accounts should be self-financing. In the short term, until revenue from scheme members’ contributions is available to cover operational costs, the setting up of personal accounts will need to be financed. Work is under way to evaluate which costs should be charged to members, but at this stage, it would not be inappropriate to use taxpayers’ money for the development of personal accounts policy.
Turning to the amendments, the authority’s spending is solely on the delivery of advice, so it is not necessary to classify grant payments as either policy or operational—I am not even sure that that is possible in practice—and it is not necessary, either, to calculate notional interest charges on those payments. Given that that is the case, and given the fact that it is normal and accepted Government accounting practice, the delivery authority will be funded by a singular grantin aid payment. The details of the arrangementsfor the payments will be confirmed in a financial memorandum to be agreed between the authority and the Department. Like other non-departmental public bodies within the Department for Work and Pensions, the delivery authority is required to report annually on its performance and financial position, including coverage of the purposes for which the singular grant in aid payments have been used. In its stewardship role, the Department will regularly review the expenditure and funding requirements for the delivery authority; annual accounts will be laid before Parliament and will be open to scrutiny. The hon. Gentleman makes a point that, like many of the points that we shall debate this morning, is important to the next phase of personal accounts. I hope that, with those assurances, he will withdraw the amendment.

Nigel Waterson: Those are important points, but not as important as those that we about to come on to, so I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Schedule 6 agreed to.

Clause 19

Initial function of the Authority

Nigel Waterson: I beg to move amendment No. 83, in clause 19, page 20, line 35, leave out ‘appropriate’ and insert ‘strictly necessary’.

Roger Gale: With this it will be convenient to discuss the following:
Amendment No. 84, in clause 19, page 21, line 2, leave out from ‘State’ to ‘which’ in line 3.
Amendment No. 20, in clause 19, page 21, line 11, at end insert—
‘(2A) It shall be the duty of the Authority to carry out their functions under subsection (1) in such manner as—
(a) appears to them to ensure, so far as they are facilitating the implementation of any such proposals, thatthere is effective co-operation in relation to the implementation of the proposals between themselves, the Pensions Regulator, the Financial Services Authority and the Secretary of State; and
(b) does not interfere with the existing provision of personal or occupational schemes.’.
Amendment No. 40, in clause 19, page 21, line 11, at end insert—
‘(2A) In discharging its functions under this Part, the Authority shall publish a report on how it can ensure that individuals who have money invested in Personal Accounts and those considering doing so in future will have access to generic financial advice.’.
Amendment No. 86, in clause 19, page 21, line 26, leave out subsection (5).
Amendment No. 21, in clause 19, page 21, line 27, at end insert—
‘(5A) In discharging its function under this section, the Authority shall ensure that its actions and advice support the following objectives for the scheme—
(a) ensuring that the overall outcome, taking account of the impact on the existing market, is an increase in the number of people saving and the overall amount being saved;
(b) optimising levels of participation and contribution among the target group;
(c) setting an investment strategy in the best interests of members;
(d) minimising burdens on employers;
(e) minimising the impact on other high-quality pension provision;
(f) assuring security of administration;
(g) governing in the best interests of members and beneficiaries;
(h) ensuring that the board acts impartially, prudently, responsibly and honestly;
(i) delivering appropriate levels of choice;
(j) achieving charges that are fair and reasonable;
(k) ensuring the funds are invested in the best interests of the members.
(5B) Her Majesty may from time to time by Order in Council make provision for amending the objectives set out in subsection (5A).
(5C) No recommendation shall be made to Her Majesty to make an Order in Council under subsection (5B) above unless a draft of the Order has been approved by resolution of each House of Parliament.’.
Amendment No. 22, in clause 19, page 21, line 27, at end insert—
‘(5A) In making preparations and giving advice, the Authority shall seek to ensure that the full costs of setting up and operating the scheme are covered by charges to be made either to employers or to members and not met from other sources.’.
Amendment No. 87, in clause 19, page 21, line 29, at end insert—
‘, and such guidance must be reported to Parliament by an oral statement made by the Secretary of State.’.
Amendment No. 23, in clause 19, page 21, line 31, at end insert—
‘(7A) Before issuing guidance under subsection (6) the Secretary of State shall consult—
(a) the Authority;
(b) organisations appearing to him to be representative of consumers;
(c) organisations appearing to him to be representative of employees;
(d) organisations appearing to him to be representative of employers;
(e) organisations appearing to him to be representative of the financial services industry;
(f) such other persons as the Secretary of State considers it appropriate to consult in relation to the guidance.
(7B) A draft of any guidance proposed to be issued under this section shall be laid before each House of Parliament.
(7C) Guidance shall not be issued under this section until after the period of forty days beginning with—
(a) the day on which the draft is laid before each House of Parliament; or
(b) if the draft is laid before the House of Lords on one day and the House of Commons on another, the later of those two days.
(7D) If, before the end of that period, either House resolves that the guidance should not be issued, the Secretary of State must not issue it.
(7E) In reckoning any period of forty days for the purposes of subsection (5) or (6), no account shall be taken of any time during which—
(a) Parliament is dissolved or prorogued, or
(b) both Houses are adjourned for more than four days.
(7F) The Secretary of State shall arrange for any guidance issued under this section to published in such manner as he considers appropriate.’.
Amendment No. 38, in clause 19, page 21, line 32, at end add—
‘(9) Prior to Parliament’s approval of proposals the Authority must evaluate the effect of means testing on levels of saving in personal accounts and its impact on returns in personal accounts and thereafter conduct and publish evaluations annually.’.
Amendment No. 39, in clause 19, page 21, line 32, at end insert—
‘(9) The Authority shall carry out a gender impact assessment of relevant proposals regarding saving in personal accounts as specified in subsection (2).’.
Amendment No. 65, in clause 19, page 21, line 32, at end add—
‘(9) The Authority shall, no later than 1st April 2008, publish a strategy for maximising participation in the new system of personal accounts in which it shall—
(a) set out and give full explanation of targets for participation in personal accounts;
(b) identify at-risk groups where auto-enrolment might risk very low rates or return;
(c) outline contingency plans for coping with the workload if participation is higher than expected;
(d) outline its strategy for maximising the participation among employees in small businesses.’.
Amendment No. 66, in clause 19, page 21, line 32, at end add—
‘(9) The Authority shall prepare and publish a report, no later than 1st April 2008, on measures it proposes to take to monitor the impact of the new personal accounts scheme on existing occupational pensions provision and to guard against levelling down.’.
 Amendment No. 67, in clause 19, page 21, line 32, at end add—
‘(9) The Authority shall prepare and publish a report, no later than 1st April 2008, on how it plans to establish and develop any necessary IT system and reduce risks of IT problems with personal accounts.’.
Amendment No. 68, in clause 19, page 21, line 32, at end add—
‘(9) The Authority shall prepare and publish a report, no later than 1st April 2008, on the percentage of the target audience of personal accounts expected to accrue returns from saving in personal account pension schemes of—
(a) more than 100 per cent,
(b) 0-100 per cent, and
(c) less than 0 per cent.’.
Clause stand part.

Nigel Waterson: I hope that I shall not test your legendary patience, Mr. Gale, but there is a great deal in the amendments that I should like to deal with in appropriate detail. The good news is that this is the last clause that need detain us for a significant time, but it raises major issues that must be addressed. Anybody who doubts that need only look at the front page of the most recent edition of Parliamentary Brief, containing a very unflattering set of photographs of the Minister—

David Laws: Unshaven.

Nigel Waterson: He obviously works night and day. Images of Richard Nixon with a 5 o’clock shadowdid for him. The unfortunate headline reads: “Would you buy a pension from this man?” I think it was Marilyn Monroe who said that any publicity wasgood publicity, but there is a limit even to that nostrum.
In this group of amendments, we come on to much wider issues about the way in which personal accounts function. The detailed stuff, as the Minister will no doubt tell us at length, will be included in the next Bill. However, by that time, the delivery authority will have spent a chunk of its £21 million and will havenailed down some of the parameters of personal accounts. It is important to draw the Ministerand the Government out on the key issues in the development of personal accounts. I make no apology for doing so, but I shall try to be succinct. I shall look in detail at the amendments before making some general points.
 To put everything in context, it is important to consider the views of the ABI, which expressed concern about two fundamental issues that we have raised time and time again. My hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond) and I raised them on Second Reading, and I make no apology for doing so in Committee. First, the ABI said that
 “the Delivery Authority should be required to take account of the potential impact on the existing pensions market...in the detailed design of Personal Accounts.”
 The Government have not only failed to do so, but have taken a quantum leap and increased the contribution cap. A few days ago, they announced something of which we take an even more serious view.
The second concern of the ABI is that
“the authority should have a duty to ensure that Personal Accounts are designed to focus on the target market (of low and middle earners), with an overall aim of increasing both the number of savers and the total amount saved.”
That is not some semantic distinction. It is important, especially at this stage, to set out what constitutes the success or failure of personal accounts. That must be clearly understood before we embark on this great adventure.
I shall now turn to the amendments. Some of them are fairly minor; others are more important. I shall begin with amendment No. 83. One might think that it was only a slight change of words. The clause says:
“The Authority may do anything it thinks appropriate for preparing for the implementation of, or for advising on the modification of, any relevant proposals about personal accounts.”
It is difficult to think of a more sweeping set of powers for the authority, which is newly emboldened, with£21 million burning a hole in its corporate pocket. We want to turn down the volume a bit and replace “appropriate” with “strictly necessary”. The point of that is to ensure that those who run the authority have a clear idea of what constitutes their duties.
Amendment No. 84 is a probing amendment.Clause 19(2) says that
“‘relevant proposals about personal accounts’ means proposals by the Secretary of State (whether or not Parliament has given any approval on which their implementation depends)”.
We are not entirely happy about that. Parliament should have a role in the proposals at the relevant time, although there may be some good, practical reasons why the Minister wants to pursue a different course.
I believe that amendment No. 20 is from the Liberal Democrats.

David Laws: No.

Nigel Waterson: Ah, I beg your pardon. I would not want to sully the reputation of the hon. Member for Yeovil—

James Purnell: Any more.

Nigel Waterson: —any more than is absolutely necessary, by associating him with one of our amendments.
The amendment deals with the duties and responsibilities of the authority. It is intended to ensure that the delivery authority takes account of existing regulators and does not interfere with existing provision. It is supplied and sponsored by the ABI, which tells me that it is based on provisions in the Office of Communications Act 2002, so there is a precedent.
Amendment No. 40, to which I meant to refer, has been tabled by the Liberal Democrats. We think that they have seen some sense, but I am keen to listen to what the hon. Member for Yeovil says about it. We have all received a brief about it. It is sponsored by the Resolution Foundation, which does some excellent work, especially on financial capability.
Amendment No. 86 seeks to leave out subsection (5). We are not entirely clear as to why the authority should not be allowed to borrow money; clearly it would be obliged to pay it back. Circumstances in which the authority would borrow money may not arise in its relatively short life, but I would be keen to hear what the justification for that is.
Amendment No. 22 is again designed to deal with any hidden subsidy or personal accounts. It is intended to ensure that the authority does not make recommendations or initiate work that would require the scheme to be subsidised by the taxpayer. That is a perfectly laudable aspiration. Amendment No. 23 is reasonably self-explanatory. It talks about the guidance to be issued by the Secretary of State under subsection (6). It makes sure that the Secretary of State will consult a variety of organisations such as representatives of consumers, employees, employers, the financial services industry and such persons as he considers appropriate to consult in relation to the guidance.
I suspect that this is another of those instances when the Minister will say, “Of course, we are going to do this anyway so there is no need to put it in the Bill.” We will retort, “Well, if that is the case, why not put it in the Bill?” Let us get over that now. If that is precisely what the Government intend to do, it seems eminently sensible simply to put it in the Bill.
I return now to amendment No. 21. In many ways, it is the key amendment in this group. It is designed to hold the Government to account over the functions of the personal accounts system. Page 84 of the White Paper, “Personal Accounts: a new way to save”, sets out the objectives of the scheme which will be set in statute. Amendment No. 21 sets out almost word for word most of those objectives. We have taken some poetic liberties here and there, but by and large these are an updated version of those objectives, which the Government have promised to set in statute.
 Some of them are beyond debate. They are perfectly obvious—to set an investment strategy; to minimise burdens on employers; to assure security of administration; to govern in the best interests of members and beneficiaries; to ensure that the board acts impartially and so on; to deliver appropriate levels of choice; to achieve charges that are fair and reasonable; to ensure that the funds are invested in the best interest of the members.
None of those aims would require any major debate. Where it gets more interesting is our proposed paragraph (a):
“ensuring that the overall outcome, taking account of the impact on the existing market, is an increase in the number of people saving and the overall amount being saved”.
That is an important objective. If the Government are not prepared to accept it with open arms, that is a major worry. It is perfectly possible to envisage a scenario in which there are more savers but the amount of savings overall has not increased significantly. Of course there will be more savers, because there will be auto enrolment; many people will, without making any conscious decision, be enrolled in the relevant company scheme. We have long been in favour of the concept of auto enrolment, but not in isolation.
Will savings themselves increase? The savings ratio has almost halved since 1997 and it is set out in the Turner report and elsewhere how important it is to get the 11 million or so people who are not saving adequately for their retirement into the savings habit. A clear litmus test for the success or failure of personal accounts would be an increase not only in the number of people saving but in the overall amount being saved. Proposed paragraph (b) reads:
“optimising levels of participation and contribution among the target group”.
The Government seem to have veered away from the target group recently, and we think that it is important to bring them back to the original concept.
Turner made clear the people at whom we were aiming the reforms in terms of personal saving for pensions. Page 48 of the White Paper states,
“Personal accounts are particularly targeted at the estimated7 million people who may not be currently saving enough to give them an income in retirement they are likely to consider adequate”.
There is the usual impressive array of charts. It goes on to specify a group that tends to be younger, on moderate to low incomes, and also part-time workers, all those who work for small employers and lower earners, a high proportion of whom are women. That seems to us eminently sensible. We made it clear on Second Reading and have repeated today that it is a major concern of ours that we seem to be getting away from the target group.
I also particularly draw the Committee’s attention to the criterion in (e), which is, “minimising the impact on other high-quality pension provision”.
That is a significant change from the wording in the White Paper, which talks about “considering” the impact on other high-quality pension provision. We do not think that that is anything like strong enough. There has to be a clear commitment to avoiding an impact on generous existing provision.
The issue of the contribution cap is fundamental for us and to the process of building consensus about the personal accounts system. The ABI has had a great deal to say about the change from the £3,000 cap, which you remember, Mr. Gale, was in the Turner report. Suddenly out of the blue the Government produced a figure of £5,000 in their White Paper. I will explain why that matters a lot in a minute, but I would be fascinated to hear from the Minister where the figure came from. The form of words at the time was that it was as a result of consultation, but we have searched high and low in the pensions and the wider financial services industry and we have yet to find anyone who will admit to having suggested increasing the cap so sharply to £5,000. It is a bit like trying to get people to admit to having voted Labour at the last election, but I am not going to pursue that argument.
The ABI says,
“The Government should set the cap for annual contributions to Personal Accounts at £3,000—as recommended by the Pensions Commission—instead of the minimum of £5,000 suggested in the White Paper.
The Government should not compromise the targeting of Personal Accounts by including savers who currently have good pension provision”.
It goes on to say that the personal account is specifically aimed at the groups that I have already mentioned—in sum, adapted to the target group—and in his statement to the House on 12 December 2006, the Secretary of State said that personal accounts should complement and not compete with existing private pension provision. The Pensions Commission itself argued that uncapped or higher levels of contributions to personal accounts could distort investment markets and have damaging macro-economic effects. It would be interesting to know whether the Minister has any concerns on that score.
The ABI goes on to say:
“The White Paper shows that, with a £3,000 cap, someone on the target income of £15,000 a year would be able to increase their savings by £2,200 pa above the minimum or default level of contribution. Anyone on a salary of up to £23,750 would be able to more than double their contributions...A cap of £5,000 would extend Personal Accounts way beyond the target group”.
We agree with that statement, which is our major concern here.
The ABI goes on to say that
“this level of cap would potentially extend Personal Accounts to nearly the entire working population...ABI data from member companies suggest that a cap of £5,000 would potentially capture 93 per cent. of the current market for employer-sponsored money-purchase schemes”.
I would be interested to know whether the Government challenge that figure of 93 per cent. Finally, the ABI concludes:
“As the White Paper says, Personal Accounts should be‘a valuable addition, rather than a competitor, to existing employer-sponsored provision.’”.
However, I am delighted that the Minister has put on record his willingness to reconsider his position. In a report in the Financial Times on 17 January 2007, he said that the Government would listen to argument if people thought that the limit was too high. He said that they were very open to that. At that same NAPF seminar, the Minister is reported as saying that the delivery authority for the new system will be given “a legal objective” to ensure that the impact on the existing market is minimised. Well, we have done that for him with this elegantly drafted legal objective, to which we hope he will sign up today.
The Minister should be under no illusion about the concerns that this has stirred up, not just within this Opposition Party—and I suspect that I might speak for the Liberal Democrats as well, as we shall hear—but within the industry itself. Stephen Haddrill, the ABI’s director general, talked about the measures extending the scope of personal accounts in “a rather stealthy way”, at the expense of the current savings market and, potentially, that of the taxpayer. His deputy, Stephen Sklaroff, said:
“We hope the Government is not deliberately trying to fix the system so more money flows into personal accounts so it can keep down costs to artificially low levels. The raising of the contribution cap to target higher earners is completely inconsistent with earlier pledges to target people on lower incomes. Our industry cannot be forced to compete with a subsidised system”.
Just as the ripples of that announcement were beginning to dissipate, something else slipped out only the other day that is causing just as much concern. Money Marketing reported on 1 February that at a Social Market Foundation seminar in London—where I was also pleased to be present—Mr. Robert Laslett, chief economist at the DWP, was responding
“to concerns that low personal account contributions would become the norm by suggesting the private sector could construct savings vehicles in partnership with the scheme for people who want to save above the contribution cap”.
ABI spokesman Jon French then said:
“No provisions for such a policy have appeared in Government documents. Any blurring of the line between existing private provision and personal accounts risks undermining both markets”.
So, again, was that just policy making on the hoof from Mr. Laslett, or does it represent deep-seated views in the bowels of the DWP about how the personal accounts system should operate? It would be interesting to know because my judgment is that the industry is not going to play if it is the latter—and, perhaps just as importantly, neither will we.
I will explain why it is so important that there is no “mission creep” in setting up personal accounts. While they start off as a concept designed to target those not saving at the moment, a point of view that we entirely agree with and respect, we do not want to see a situation where some of the best provision of private pensions in the world—despite the depredations made under this Government—is itself undermined by the law of unintended consequences which tends to run rampant through attempts at pensions reform.
I will now refer to a research paper published by the ABI and prepared by Deloittes on the issue of levelling down. For the uninitiated, levelling down is the concern of people like me and many in the industry that employers with existing generous pension schemes, looking at significantly increased costs, based on auto enrolment, could with some relief turn to the personal account system. We have seen 60,000 DB schemes close already under this Government but we could seemany more of them close on the basis that thereis a Government-backed or Government-sponsored scheme which will do just as well.
 It is crucial to bear in mind one simple truth. Although it is important—in fact essential—to encourage non-savers into saving for their retirement for all the right reasons, levels of contributions envisaged in Turner and set out in the Government’s personal accounts proposals, as we have seen them so far, will not deliver a particularly comfortable retirement for most people. For many employees currently in schemes with relatively generous contributions and relatively generous benefits it would be a step or more backwards to move to personal accounts.
Stephen Hadrill says in the introduction to the ABI research paper, prepared by Deloittes:
“The Government has said it expects such levelling-down to be minimal but the research presented in this report paints a very different picture. One in four employers who currently contribute over 3 per cent of earnings to employees pensions said they would introduce a new lower rate of contribution. This represents reduced employer pension provision for 2.4 million employees.”
Without going into enormous detail, I would certainly commend this document to the Committee. It makes certain key findings: that the average employer contribution rate for existing members is 6.2 per cent and the average employee contribution rate is 3.8 per cent. Twenty-three per cent of employers who have a pension scheme claim that their response to the reform programme will be to close the scheme to all or some employees, and 7 per cent. claim that they would reduce contributions for new and/or existing staff. Some 30 per cent are as yet unsure of their response. Of 24 per cent of employers who are currently making contributions, over 3 per cent say they will offer a lower contribution rate than the one that they offer their staff generally in their open pension schemes.

Andrew Selous: Does my hon. Friend agree that it would have been useful had the author of this Deloittes report been able to come and give evidence to this Committee, so that we could tease out some of the very serious issues that this report alludes to?

Nigel Waterson: I do not disagree with my hon. Friend and it would have saved me from giving at second hand the views of the people who have prepared these and other reports. We have already had a discussion about oral evidence and written evidence—not that I have noticed a torrent of written evidence so far but no doubt some of it is on the way—but the key sentence is this:
“This represents reduced provision for 2.4 million employees.”
There has been a lot of misinformation about levelling down. This is not a concern about some Big Bang that from one day to the next people will close schemes and move to personal accounts. It is put rather well in the report when it says:
“And over time job turnover is likely to increase the amountof levelling-down. Employees who leave schemes with high contributions are unlikely to be eligible to participate in schemes with such high contribution rates at their new employer.”
That is the concern: a gradual erosion of existing provision over and above that which has already happened and is happening as we speak.
Finally, on this particular point, an excellent document produced by the National Association of Pension Funds in December called “More Savers, More Saving?” talks about some of the same issues as the Deloitte report. The document talks about the need to encourage more people to save, which is what the entire scheme is about, and about a worst-case scenario, which could see a substantial reduction in contributions:
“total employer and employee contributions could be almost£10 billion higher if there is no levelling down compared to our worst case scenario.”

James Purnell: Does the hon. Gentleman recognise that neither the NAPF nor the Government think that the worst-case scenario will materialise? Even that worst-case scenario is a significant increase in the amount of savings compared with today. More importantly, in that document or another, the NAPF makes a number of recommendations to prevent levelling down, all of which the Government are, I think, looking to implement—apart from one, a new form of tax relief for the schemes. Is the hon. Gentleman saying that the Conservative party is committed to that extra tax relief?

Nigel Waterson: No, I am not saying that. I am flagging up the concerns of the industry. I am delighted to hear that the Minister is on the case. When he has more time, in his own speech on the group, no doubt he will tell us in more detail whether he accepts the concerns, and if not, why not? Precisely what are the Government doing to avoid the trap set out here? It is true that the NAPF set out some ideas, one of which is the good pensions mark, which would distinguish existing NAPF-type employer schemes—generous current schemes—from others. That is an excellent idea, although more of the detail would be interesting. The Minister might have something to say on that.
I will quote one other thing from the NAPF report, which ties in with amendment No. 21:
“The Delivery Authority for Personal Accounts is officially tasked with taking account of the impact of the new regime on existing provision in its recommendations for the design of Personal Accounts to Ministers”—
that is what they are saying should happen and that is the point of the amendment.
I will move on to deal with the more minor amendments, while making it absolutely clear that, for us, the key amendment in the group is amendmentNo. 21. Subject to what the Minister has to say—I appreciate that there are a lot of points to cover—we would like to see a clear commitment from the Government, or we might feel obliged to press the amendment to a vote.
From the sublime to the ridiculous—amendment No. 87 also talks about guidance, which we say ought to be reported to Parliament by the Secretary of State through an oral statement. We think that only reasonable. On reflection, I am prepared to accept the Minister’s assurance of a written statement, perhaps, but I think that Parliament should be kept abreast of things, if at all possible.
I mean no disrespect to the hon. Member for Yeovil if I touch on the Liberal Democrat amendments only briefly—as I know that he will not. I think that the thrust of amendment No. 38 is not totally different from that of some of the stuff that I have been saying, being concerned about the effect of means-testing on the levels of saving, which I shall say a little about in a moment. However, we will be having a fairly substantial debate later in our deliberations, so I will leave a lot until then. Amendment No. 39 and the gender impact assessment—who could disagree with that? Amendments Nos. 65 to 68—publishing a strategy on anticipation of the system of personal accounts is perhaps a different way of coming at the same sort of issues that I have been tackling in my comments. Amendment No. 66 would require the preparation of a report to monitor the impact of the new personal accounts, which again seems eminently sensible. Amendment No. 67 is on IT and makes what seems a useful suggestion, and we have no difficulty with amendment No. 68, on the target audience.
Before I conclude I should say that I am emboldened because the NAPF supports the principle behind amendment No. 23, which is an important amendment on issuing guidance. I hope that that will make it more palatable to the Minister. It also supports amendment No. 20.
I return to whether the scheme will succeed. As avid readers of Parliamentary Brief will know, Mr. Steve Bee, who is quite an expert on such matters and seems to be stalking the Minister in cyberspace through their respective blogs, says, as the sub-headline puts it, “Sorry, Minister, but you just cannot sell a pension plan which comes with a 40 per cent. tax on savings”. While I appreciate that there is some difference between him and the Minister on how to define a tax, Steve Bee says that under the pension credit system, some people will be left just £11.70 a week better off than someone who has not saved for their retirement. He writes:
“That is slightly more than a 40 per cent. tax on saving and is exactly why millions of people on modest earnings should be very wary indeed about your proposals for a National Pensions Savings Scheme.”
I wish to leave means testing aside at this stage, because we can have a much wider debate on it later under one of the new clauses.
Mr. Bee says that personal accounts will be an “advice-free zone.” He writes:
“Consumer protection must be built into the thing just as it is within our existing pension system.”
That is another concern, and one that we mentioned most recently on Second Reading. There are consumer protections issues to consider. For example, Which? has been keen to brief the Committee about the possible scrapping of rule 64 by the FSA in its current review. It states that it
“could lead to consumers not having access to a low-cost pensions product in the run-up to Personal Accounts which would disadvantage low to medium income earners and potentially undermine trust in the pensions system....The removal of rule 64 contradicts the government objective of more people saving more for their retirement between now and 2012. Consumers would not receive written justification from a financial adviser concerning any recommendation for a pensionproduct that is more expensive than a stakeholder pension.”
There are concerns there and, although I appreciate that it is a Treasury matter, the Minister might be able to tell us where people have got to on the matter.
Finally on advice, we are pleased that Mr. Otto Thoresen of AEGON has been appointed to run a financial capability taskforce, as I believe it is called. That is important, because various groups are affected: the target group, who must remain the focus, and people who would not be well advised to enrol automatically into personal accounts. They might have low income or high credit card debts that they would be much better advised to pay off. The wonderful phrase “generic advice,” which gets kicked around and is what I understand Otto Thoresen will focus on, is an oxymoron. Generic advice cannot be given to people who need the specific advice that they should not be automatically enrolled as it would be to their disadvantage. That is an issue that Mr. Bee deals with.
The central issue is the cap and losing sight of the target group. We have been doughty warriors in the battle for consensus on many issues, but this is a sticking point for us. The proposals contain the potential for mission creep. So I urge the Minister to confirm that, as has been reported, he is willing to think again. Otherwise, those proposals could well be the rock on which the good ship consensus finally founders.

David Laws: Mr. Gale, welcome back to the Chair. The hon. Member for Eastbourne rightly took some time over his, and indeed our, amendments. He mentioned a rock on which the consensus might founder—the rock that might hole the ship. I must say that there are a number of different rocks on which that consensus might come into trouble, all of which are related to clause 19. So, as he anticipated, I shall take a little time over our seven amendments.
I know that the Minister would not want me to gloss across my amendments. However, I shall make a deal with him. If he gives me full time and very good answers, I promise to whiz through, or not even speak to, the next 10 clauses. The more helpful his answers, the quicker I shall be over the next 10 clauses—that is quite a carrot. Already I can see notes being passed to him—no doubt people encouraging him to be as helpful as possible.
We have tabled seven amendments to clause 19, and I want to describe them briefly, but rapidly, in a logical order. Then I want to discuss some of the important issues that sit behind them. Amendments Nos. 38 and 68 sit together to some extent. The former reads:
“Prior to Parliament’s approval of proposals the Authority must evaluate the effect of means testing on levels of saving in personal accounts and its impact on returns in personal accounts and...publish evaluations”.
Amendment No. 68 would require the Government, before 1 April 2008, to describe what proportion of the target audience for personal accounts would receive returns, and sets out target bands. I shall come back to why we think that that is so important.
Amendment No. 40 deals with the important issue of the financial advice offered to those intending to invest in personal accounts. The hon. Member for Eastbourne has touched on that already. Amendment No. 39 would require the authority to carry out a gender impact assessment of proposals for personal accounts and participation. Participation is dealt with by amendment No. 65 as well. Amendment No. 67 deals with the Government’s IT system and whether the computer can say yes to the complexities of personal accounts or whether problems might arise as a consequence of the sheer ambition of the project. Finally, amendment No. 66 deals with the issue that the hon. Gentleman spoke about for some time—levelling down and the protection and encouragement of existing occupational pension provision.
I know that the Minister is keen to leave until the debate on new clause 2 the issue of means testing and returns on personal accounts, but I cannot decouple them from a discussion on how the system of personal accounts should be established. Unfortunately, we have not had the seminar on means testing and returns that we were promised at the beginning of our proceedings, and neither have we had an indication of when it will take place—I hope that we will have one this morning. Some of us had hoped that it would be during the Committee’s proceedings, but it seems that it will run beyond them.
That means, unfortunately, that there is a great deal of disagreement over the level of the means testing.

James Purnell: It will be on 28 February.

David Laws: I am grateful to the Minister. I shall clear my diary immediately for that major event of 2007. I just hope that I am available on that day.

James Purnell: I hope that it does not clash with the hon. Gentleman’s seminar.

David Laws: I shall move my seminar to ensure that it does not, and so that there is no tension over which the Minister should attend. Notwithstanding the clarification of the date, we still do not have much clarity about how many people will be means tested in future. That is enormously important, because people’s views about whether they should invest in personal accounts will differ according to whether they are likely to be subject to the types of withdrawal touched on by the hon. Member for Eastbourne. As we know, the Pensions Policy Institute has a much higher figure for the proportion of people who are likely to be subject to means testing in future—45 per cent. or more in 2050—and its band of prediction for the proportion of people on means testing is very wide. It ranges from50 to 55 per cent. in 2020 to 30 to 65 per cent. in 2030, so there is an enormous band of uncertainty.

James Purnell: Does the hon. Gentleman accept that the PPI says that the 65 per cent. figure is based on a collapse of private saving, and therefore on a scenario in which the White Paper policy has entirely failed, rather than on one in which it has succeeded?

David Laws: Yes, of course those are the bounds. However, they indicate that the PPI thinks that the Government’s estimate of about 30 per cent. or 28 per cent. is the absolute lowest that it could be, and that the range of uncertainty means that the figure could be much higher.
The other thing that I am keen to find out is whether the Government have assessed what proportion of the personal accounts target audience will be subject to means testing. Our assumption is that the figures that we have cited are flattered by the inclusion of people such as Members of Parliament and chairs of big private-sector industries who are never going to be worried about means testing and will never come under it. Perhaps we should expect that those who are likely to be auto enrolled into personal accounts will be those on the lowest incomes, who might be at the greatest risk of ending up on means testing in retirement.
We would like to find out not only what a credible consensus figure would be for means testing but what proportion of the personal accounts target audience is particularly at risk. That is important because Lord Turner’s intention was that people would have a powerful incentive to save in the personal accounts, in that they would get £2 for every £1 that they put in. That sounds rather like an echo of the Liberal policy of 1911, which is obviously where the Government have stolen this great idea from. I notice that Lloyd George’s version was rather more generous than two for one; it was 9d for 4d. Hon. Members might be interested to know that employees put in 4d, the employer added 3d and the state 2d, which goes to show that people always get just a little bit more under a Liberal Government. That also gave certainty about what the returns were going to be. People had the security of knowing that if they put in a small amount, it would turn into something much larger. That is very attractive to those on low incomes and those with a great aversion to risk—they do not want to put all their money into Chinese equities, but they do want a powerful incentive to save. I agree that getting £2 for every £1 put in is a powerful incentive.
During the Second Reading debate, I was trying to find out how many people could be expected to get that return when the Secretary of State responded by saying:
“We believe that the vast majority of peoplewill be able to look forward with some confidence to receiving £2 back for every £1 put in.”—[Official Report, 16 January 2007; Vol. 455, c. 665.]
I then pointed out that that reassurance seemed to be contradicted by the estimates that had been produced by the Department in its very helpful research report “Financial incentives to save for retirement”, in which the Government are clear that
“the system that we propose, in combination with the introduction of personal accounts, will see the large majority of people ... expecting a payback well in excess of £1 plus inflation for every £1 that they save, subject to factors such as investment growth and fluctuations in annuity rates.”

Andrew Selous: Does the hon. Gentleman agree that one key factor in this discussion is the length of time involved? Doubling one’s investment over one’s entire working life is one thing, but many people in the financial markets would say that one should aim to do that every seven years or so.

David Laws: The hon. Gentleman makes a fair point, as ever. The time period is extremely important. But we will go on to demonstrate that not only is the time period relevant to the return but other characteristics are too. They include how much a person’s time in work is broken; how much time they end up taking off for caring work or looking after their children; whether they are self-employed; whether they are high or low earners and whether they will be renting property in retirement and therefore affected by the withdrawal of housing benefit if they are on low income. All of those factors will affect their returns from personal accounts.
Very helpfully, the Secretary of State, after the passing of one or two notes from the officials’ box, got up again on Second Reading to clarify his initially quite clear-cut statement that the vast majority of people could expect this £2 for £1 return. He said:
“Let me clarify the issue. I am advised that a large majority of people with a good work history, saving from the age of 25, can expect a payback of about £2 per £1 in 2012. Of course, that crucially depends on for how long they contribute to the scheme. ...these figures are for illustrative purposes only.”—[Official Report, 16 January 2007; Vol. 455, c. 692.]
So suddenly, what had seemed to be an assurance relevant to the vast majority of people, was relevant only to a particular group of the vast majority who are expected to go into personal accounts. What we have on the record from the Department is something far less encouraging. Instead of the two for one pledge, one for one is all that can be made. We also have the clarification that it will be difficult for anybody to advise individuals on what the returns will be prior to going into these accounts, because there will be a lot of uncertainty about the factors that will determine the return. That is made clear in the Government’s paper.
The Pensions Policy Institute, as ever, has produced some incredibly helpful calculations based on a whole series of different individuals from different income groups and different caring and work experiences. It published them in a very good paper entitled “Are personal accounts suitable for all?” in November 2006. Some people will get quite good returns from personal accounts. To take a random example, a woman aged 25 in the ninth top decile of earnings with a full national insurance record and large other savings, based on the investment returns that the PPI has used, can expect to get a return of something like £3.43 for every £1 invested. That does not seem a bad return at all. But going to the other extreme, a woman aged 55 who is self-employed and in the first income decile will get 5p back for every £1 invested when means-tested benefits are taken into account.

James Purnell: Does the hon. Gentleman recognise that people who are self-employed will not be automatically enrolled into personal accounts?

David Laws: Yes I do. But I also recognise that there are other groups of people who are not self-employed and who are very vulnerable. We can cite some of them here. I also recognise that the Government are seeking to ensure that as many people go into personal accounts as possible. I am sure that the Government would not automatically want the self-employed not to be included in this aspiration to ensure that more people had second-tier savings.

James Purnell: The only other high-risk group mentioned by the PPI is people who are on housing benefit in retirement. Would he advise people who are 25 who think that they may be on housing benefit in50 years’ time not to save because of that?

David Laws: Well, that is the point. I am not sure what advice I could give to those individuals. I have talked before about the man in the pub in Yeovil. The person in my mind in relation to this debate is not necessarily the man in the pub in Yeovil but the woman working in the office in Yeovil, either late in her career, or early in her career for that matter—the person who might even work in the office of the hon. Member for Eastbourne or my office if they did not have a parliamentary pension scheme covering them.
I am trying to anticipate, if those individuals came to us as moderately informed people in relation to the pensions debate, could we give them clear and unambiguous advice about whether they should be in the personal accounts rather than out of them? I am not sure whether I could confidently give advice to some of those categories of people at the moment.

James Purnell: To give them that certainty is the hon. Gentleman therefore proposing to abolish housing benefit?

David Laws: No, I am not proposing to abolish housing benefit. I am suggesting that the cost of the Government not having the resources to deliver a better basic state pension is a large number of people on means-tested benefits. The Minister is entitled to point out to me that our proposals would be considerably more expensive than his but I am entitled to point out to him that there is a cost to his lack of financial generosity, which is to have a huge number of people on means-tested benefits and therefore to have less clarity about what the returns will be.
We have already seen that the Secretary of State could not guarantee for the majority of people that they were going to get a £2 for £1 return, because although people will get their employee contribution paid in and their employer contribution paid in, although they will receive an employer contribution if they are in employment and not self-employed, and although they will obtain tax relief they will also lose tax on the way out. They will lose the charges. They may lose some of the means-tested pensioner benefits. They may lose housing benefit and they may lose council tax benefit, so they will go up one escalator and in some cases they will go down another escalator. That is why many of the people in the pensions industry and beyond are worried about the extended means-testing.
I do not want to quote him too often because he will get carried away by the extent to which we rely on him in this Committee, but there is also an excellent article by Mr. Steve Bee in yesterday’s edition of Pensions Week, where he says at the beginning:
“I was looking through the January issue of the Financial Services Authority’s newsletter for financial advisers”—
as we all do—
“when I noticed the reference made to means-tested benefits and the giving of advice”.
He quotes an extract from that advice from the Financial Services Authority to financial advisers. It says:
“Means-tested state benefits factors that impact on the advice you give will vary from product to product and customer to customer. However, one factor that you may want to consider taking into account is whether a product will affect the customer’s entitlement for means-tested state benefits. Principle nine imposes a broad requirement for a firm to take reasonable care to ensure the suitability of its advice...You may wish to consider the impact of your financial advice on means-tested benefits in communicating with some of your customers”.
Then Mr. Bee cites a bad example of a firm that recommended a low-premium pension to someone in their late 50s with no previous pension provision. The point that he makes in his article is:
“This does beg the following questions about the care that will be taken as people are auto-enrolled into pension saving by the legislation the government is proposing:
Will those auto-enrolled into saving in personal accounts be advised on the impact on their entitlement to means-tested benefits? Will older people with no previous pension provision be advised not to save in a personal account?”
He goes on to cite another couple of considerations. He says in conclusion—it is worth quoting because the issue is important:
“The fact, though, that this is important enough to be brought to the attention of financial advisers by the regulator indicates it will surely be even more important for the DWP to take great care when distributing personal accounts to its target market of people on low to medium levels of income. If, however, the government cannot give assurances to those about to be swept into pension saving that the same level of care will be taken in regard to the suitability issues that are required of financial advisers, then perhaps people should be wary about getting caught up in the scheme”.

James Purnell: Is the hon. Gentleman’s position that if there is any means-testing in the system, automatic enrolment is not justified?

David Laws: No. The Minister knows that that is not our position. It will be considerably more dangerous if, as may well happen, 50 per cent. or more of the target audience for personal accounts is subject to means-testing for the next three, four or five decades, as there will be a rampant risk of mis-selling, which we should be concerned about. That risk could be more easily contained and financial advice could more easily be given if a much smaller group of people were to be means-tested.
The Minister knows that the proposals advanced by the PPI and others for a more generous universal pension would involve means-tested levels south of10 per cent., not north of 50 per cent. That is why the issue of financial advice is so important. We know that the Government are ploughing on with the scheme as it stands on the basis of a low basic state pension that will not be indexed to earnings for many more years, and which will therefore continue to shrivel in relation to average incomes. That is why we tabled amendment No. 40, which the hon. Member for Eastbourne was kind enough to mention, and which he indicated that his party generally supported.
The amendment was suggested by the Resolution Foundation, which encourages the provision of generic financial advice. The foundation has been working closely with the Treasury to establish mechanisms to ensure that there is generic financial advice for people on low incomes in future. The amendment would require the new Personal Accounts Delivery Authority to report on how people can access generic financial advice in connection with personal accounts.
In a helpful note to me setting out some of its concerns about the issue, the foundation asked that Ministers clarify three points—first, that information alone about the impact of means-testing and returns in personal accounts will not be enough. The foundation said:
“Ministers should make a clear commitment that generic financial advice will be available in connection with personal accounts in line with the recommendations of the Work and Pensions Select Committee and of the Treasury Select Committee.”
Will the Government ensure that better generic financial advice is available to people on low incomes for all their savings products? Obviously, the more such advice is available the more it will reduce the risk of people saving in personal accounts who should not be doing so, or doing so only after very considerable thought.
Secondly, the foundation said:
“Ministers should also make clear that the provision of generic financial advice will be one of the issues the Authority should consider during the first phase of its work, and provide assurances that this will be reflected in the executive powers and responsibilities due to be outlined in the second Bill”.
That Bill is expected at the end of this year.
Thirdly, the foundation suggested, reasonably, that the delivery authority’s work should be closely linked to the work on financial advice that the rest of the Government are undertaking.
On 15 January, in a Treasury document entitled “Financial Capability: The Government’s long-term approach”, the Government set out their aspiration to provide high-quality generic financial advice and established the feasibility study that the hon. Member for Eastbourne discussed earlier. Could the Minister explain how those two things will lock together and reassure us that they will lock together in time to provide the relevant financial advice for people who are saving in personal accounts? The Minister himself commented on the issue in his speech to the Social Market Foundation on 30 October, when he said:
“It would be up to the individual to decide whether they remain in a personal account. The test for us—
that is, the Government—
“in this will be whether we can give simple generic advice to people about whether they should do so.”
I want briefly to discuss two other issues. First, it would be useful to hear the Minister’s response to the amendments that deal with participation, which is covered by the clause. That issue includes people’s perception of the returns from the accounts and the impact of means-testing, but there will also be concerns about groups that are liable to be left out and possible incentives for certain employers to discourage certain groups from taking up personal accounts. Just as there are concerns about people taking up accounts who should not do so, there are concerns about people who may be left out because of the way in which personal accounts are presented to them. I hope that the Government will respond to that.
Secondly, I should like to mention levelling down, to which the hon. Member for Eastbourne referred. He is right to make a big deal about the issue, although there has been considerable falling down of contribution and coverage levels for DC and DB pensions over the past few years. That is the general background.
None of us wants personal accounts to become the automatic route of choice for most employers in this country, because they provide a basic minimum level of saving. The evidence that was given to the Workand Pensions Committee on 17 May 2006 by Mr. Waddingham contained a powerful warning against getting too obsessed with personal accounts at the expense of other provision:
“NPSS is a good idea, it will help many people, but I am terribly worried that we might see a public sector with very good salary-related pensions and a private sector just with a relatively low-level money purchase NPSS, and I am saying, ‘Please, could we not have help to encourage the good employers to do something in the middle?’”
Of course, we want to see priority given to including in second-tier pension provision those individuals who are not included at the moment. That is even more important for us than it is for the Government, because we do not want a world in which the state is in second-tier provision. It is particularly important that second-tier provision works; otherwise, people will be reliant only on a basic state pension.
The hon. Member for Weston-super-Mare pointed out the other day that there is nothing intrinsic to DC schemes that means they give low returns; if people make high contributions, they can have good returns. The sad fact is, however, that the switch from DB to  DC schemes has been associated with a decline in contributions. It is easy to see why, because it is the final salary element of DB schemes that derives high contributions. Moving away from a final salary link can therefore lead to lower contribution rates.
We risk ending up with quite unequal pension coverage between the private and the public sector, and perhaps also between the affluent and the less affluent. I have noticed, not only in the public sector but in some of the private sector schemes, that the people who are most affluent and most capable of making decisions about investment risk are more likely to be in defined-benefit schemes and have high employer contribution rates. There is a slightly eccentric relationship, which is the opposite of that which we might want, between high contributions and high risk and the types of groups that are covered. Mr. Waddingham is right to point out that many low and middle-income groups might end up with a system of personal accounts where the total contributions could be quite low, where the risk will be quite high in relation to their understanding of the risk and where there will be no great certainty about what the pot will realise on maturity. We only have to look in the Sunday newspapers to see the scepticism among people in the high-income groups about investing in pensions—with all the uncertainties there are perceived to be and their desire to invest in housing instead—to understand how difficult it will be to get many people to invest in the personal pension accounts.
I am interested to hear the Government’s argument about levelling down. In fairness to the Government, at Second Reading two different positions were put from the Conservative Benches about the £5,000 cap. There was the position of the Front Bench, which is clearly very uncomfortable with the £5,000 cap, but there was also the view of the hon. Member for Grantham and Stamford (Mr. Davies), who pointed out that it was totally improper for the Government to meddle in the freedom of people to invest however much they wantin personal accounts. He thought this was totally unnecessary Government interference in free competition.

Andrew Selous: I have great respect for my hon. Friend the Member for Grantham and Stamford and it is worth putting on record for the Committee that he is not a member of the Opposition Front Bench.

David Laws: I quite agree with that, as I indicated in my comments. He has been known for some time in the Conservative Party and elsewhere for speaking his mind very candidly on issues that are not always Conservative Front Bench policy. He did, however, raise an interesting point, and one which might be an instinctively Conservative point or distinctively Liberal point even, that giving people the freedom to invest in their personal accounts as much as they want to without excessive regulation might be a principle that we would also want to think about.
I am interested to hear the Government’s views in relation to the £5,000 cap. I am interested to know whether they think there may be some people who would want to make lumpy contributions in particular years and whether they want to create the freedom for that. Perhaps more significantly, the issue is whether it is the cap that is fundamental to encouraging decent occupational provision in the future.
I think what the Conservative Party is saying is that, if you set that cap too high, it will be all too easy for firms to simply dump their own pension scheme into the personal accounts when they might otherwise have kept some other better scheme. While I understand that point, it may be that those same employers wouldhave chosen simply to downgrade their level of contributions to the benchmark Government level, even if the pension was not in the personal account itself.
The issues that the National Association of Pension Funds and Mr. Waddingham raise in their evidence are rather more fundamental to trying to encourage and incentivise businesses in the future to keep on with better schemes, both DC schemes with higher contribution rates and DB schemes. In an interesting section in his evidence, Mr. Waddingham talked about whether we could make DB schemes in the private sector useful again in the future, perhaps by having much lower accrual rates—perhaps 1 per cent of salary for each year of service; whether we could make them career-average rather than final salary to make them cheaper; whether there were things the Government could do to encourage risk sharing between employees and employers. There are already many private sector companies that are sharing the longevity risk so that people who live longer will end up with a reduced pension if they live longer than the actuarial estimates. 
In all of these ways, the Government may be able to facilitate the process by which, over time, we get back some of the DB schemes of the private sector. I think that would be a good thing.

James Purnell: The hon. Gentleman knows we are carrying out a regulatory review and a number of those suggestions have been made to it. We will consider these and come back to him in due course. Given that the hon. Gentleman has said that he does not thinktax relief is particularly effective at encouraging contributions, will he make it clear that he is not proposing that there should be extra tax relief for DB schemes?

David Laws: I do not know which bit the Minister was referring to when he said that I said tax relief is not effective in encouraging contributions. He may be anticipating a debate that we are going to have on new clause 29 or something like that. I think as a whole tax relief for employees is very effective in incentivising those in the higher-income groups, perhaps not the lower-income groups. I would, however, ask him to keep an open mind about any measures that he can take to incentivise employers to stay in better-quality pension provision, including DB, and to consider the cost that may be borne by employers in introducing those schemes, including regulatory costs. I would not want to see a system with an unlevel playing field against the personal account. The Government should be seeking to do whatever they can to keep good-quality employer schemes in place. That may be about far more than whatever the level of the cap is, which might be an issue of relatively low importance, although prominent in the debate.
Mr. Gale, I have obviously kept on speaking until the hon. Member for Eastbourne could return with his coffee. Now that I see him back in his place, I can  conclude by looking forward to hearing the Minister’s responses. If he is encouraging, maybe the next few clauses will be faster than clause 19.

Roger Gale: Order. I am afraid that Lord Nelson has had his outing for the morning. I have to say to the hon. Member for Eastbourne that hot drinks and food are not allowed in Committee. I am afraid he will have to take his coffee outside. Saying so saddens me, because I am sure we would all like one, but it is not permitted.
I understand the importance of the means-testing debate. The Minister indicated to me that he intended to deal with the issue under new clause 2. In return, I have indicated that the Minister may do either/or but not both. I do not think which makes a great deal of difference to the satisfactory discussion of the Bill, save this—new clause 2 might fall to the guillotine on Thursday afternoon. That matter is entirely in the hands of the Committee, not of the Chairman, but I felt obliged to make the Committee aware of those circumstances, because it is for the Committee to pace and negotiate, not the Chairman.

Nigel Waterson: On a point of order, Mr. Gale. Might I help the Committee, despite boiling hot coffee on my fingers? My intention, although I touched briefly on means-testing, was to focus the debate on new clause 2. Famous last words, but I have every confidence that we will have time for a debate on the issue.

Roger Gale: That is helpful. If the hon. Member for Yeovil is prepared to take an equally constructive approach, we might make rapid progress.

David Laws: On a point of order, Mr. Gale. I am happy to have a second bite at means-testing on new clause 2, as I am being encouraged to. However, perhaps the Minister would say something in the current debate about the linked but slightly separate issue of returns from personal accounts.

Roger Gale: I had better leave it to the Minister to decide what to do.

James Purnell: We started with a threat, I think, from the hon. Member for Yeovil that if we did not address the point seriously—

David Laws: An offer.

James Purnell: —then he would filibuster the remaining amendments. As a consequence of my failure to address his points, I was particularly looking forward to him extending the debate on what the short title of the Bill should be. We are now reversing that, and I am making him an offer. If he progresses speedily, then he will be able to get my argument in full. The point about incentives to save is generally linked to the argument that I want to make about means-testing. I have a genuinely substantive offer to make to him. I hope that he will take the assurance that I will be returning to his general points under new clause 2, although I will answer a couple of specifics here.
This has been an important debate and several important issues have been discussed. It is right to do so, as personal accounts go to the heart of the policy area. Personal accounts and automatic enrolment are probably the most radical parts of what the Pensions Commission recommended. It is good that we have scrutiny of the issues. I am sure that we will continue to debate the issues we have discussed today over the months to come.
Clause 19 provides for the delivery authority to advise the Government on relevant proposals. What seems like many sitting ago, we started off by saying that the authority will not be making a bunch of decisions without consulting the House, which is a guarantee—or safeguard—that I hope the Opposition parties will accept. All that the authority will be doing is advising us. If there are then proposals that require parliamentary approval, which we think there will be, we will come back to the House to consult.
As you know, Mr. Gale, subject to the will of Parliament, we hope to introduce the second Bill on the issue in the next Session. That will give us all a fantastic opportunity to go through all these debates again, and I hope that it will be under your chairmanship—I know that you are looking forward to it. We may seek to change the Standing Orders between now and then, so that the hon. Member for Eastbourne can go and buy us all coffee when the hon. Member for Yeovil stands up, and does not have to resort to burning himself to stay awake. I am not furthering my chances of avoiding such debates, am I?

David Laws: I am writing my speech now.

James Purnell: This is a mixture of procedural and substantive amendments. I intend to go through the procedural ones first and then deal with the others.
The first is amendment No. 84, which would leave out the words that make it clear that “relevant proposals about personal accounts” include those that have not yet been approved by Parliament. We sought to include those words for the avoidance of doubt, so that expenditure conventions are not breached. The delivery authority has no decision-making powers relating to the implementation of personal accounts; it is to advise us on policy options. It would not, therefore, be sensible to limit its advisory role to proposals that Parliament has already approved. In fact, if the authority is to serve its purpose, the Government need to take account of its advice, so that we can ensure that our proposals have been properly scrutinised by it. Given that the role of the delivery authority is to advise us on proposals that we hope to bring to the Committee, and that the amendment would vitiate the purpose of the authority, I hope that the hon. Member for Eastbourne will be convinced that it would be sensible to withdraw the amendment.
The hon. Member for Yeovil introduced amendment No. 67 on IT by saying that it is to do with concerns about the Government’s computer—but this will not be run on the Government’s computer. The whole point of having a delivery authority and a personal accounts board is that people will not buy a pension from me; they will get it from the personal accounts board and the providers that it enlists. That applies also to the IT side of things.
We recognise that getting the IT right will be a critical factor in the success of personal accounts. Discussions with pension providers and administrators have made that even clearer. It will be for the delivery authority, in due course, to draw on its private sector expertise to make contracts for the personal accounts scheme and to manage its delivery.

John Penrose: Have I got it right? Is the Minister saying that this is more likely to work because it is not directly controlled by the Government?

James Purnell: I am saying that in the matter of providing personal pensions, the Government do not claim to have direct expertise. Therefore, we are setting this up, as recommended by the Pensions Commission, at arm’s length from Government, drawing on private sector expertise rather than trying to provide it through the national insurance computer.

John Penrose: I think that I am reassured, but I am not quite sure. I am just worried that the principle might then be extended to other Department for Work and Pensions IT systems. If the Minister thinks that that is a good idea, is it something that we should bear in mind for other IT developments at the DWP?

Roger Gale: Minister, I do not think that you should go too far down that road.

James Purnell: The projects at the heart of the DWP’s delivery of benefits and pension entitlements are things in respect of which it is proper for us to take the lead on contracting and policy delivery. Of course, we deliver most of those through the private sector through a contractual relationship. The National Audit Office recently complimented the Pension Service on its delivery of pension credit. It is not true that all Government IT projects are disastrous. With that final controversial statement, I shall turn back to the amendments.
Which IT systems are used to deliver personal accounts will be determined by suppliers within their overall proposals, and proposals will follow current best practice within IT. That includes reusing existing equipment where possible and using commercial off-the-shelf packages, although there will be a role for innovation there as well. The key point is that it will be for the providers rather than the DWP to decide and lead on that. We cannot be certain which IT solutions providers will propose and which will represent the best value for money. On current plans, we would not expect to select any suppliers before autumn 2009. So, on the technical detail of the amendment it would be premature to publish a report in April 2008, which could prejudice our commercial proceedings. However, I think that the amendment was probing rather than specifically intended.
The hon. Member for Eastbourne has sought, through amendment No. 83, to restrict the authority’s ability to perform functions by replacing the word “appropriate” with the words “strictly necessary”. In the context of the advisory body that we seek to establish, we are worried that this amendment would make it difficult for the authority to decide whether it is permitted to offer advice to the Government at all. If the advice would be, for example, merely useful rather than “strictly necessary”—and not about something that we must do—then the amendment would prevent the authority from having the ability to advise us. That cannot be right, and I am not sure that there is a burning concern about this issue. The fact that they will be advising us and, again, that the Department will be taking any decisions is, I hope, a sufficient safeguard.
Amendment. No 20 seeks a commitment on how the delivery authority will implement the proposals on personal accounts. In particular, it asks that the authority should take account of the Financial Services Authority and the pensions regulator. Of course, it is quite right that personal accounts should be properly regulated when they are delivered, but—without wanting to sound too much like a broken record—at this stage the issue is really between the Department itself and the regulators. We have worked closely with the FSA and the pensions regulator to develop policy in that area thus far; we will continue to do so, while ensuring that the appropriate regulatory structures are put in place at the right time.
In that context, Committee members will know that we have established an independent review of pensions institutions to examine how the functions of the FSA, the pensions regulator and other bodies are aligned with our existing pensions policy, reforms and market developments. The review will seek to build consensus on the most efficient and effective way to arrange those institutional functions; it will make recommendations in the spring.
On guidance—

Nigel Waterson: Just before we leave that point, I remember that under the Pensions Act 2004, when we set up the Pension Protection Fund and the regulator, there was some early stormy weather. Ultimately,a protocol had to be agreed on the relative responsibilities because of gaps in the legislation.Does the Minister envisage similar protocols, or recommendations on them, emerging from the review that he mentioned?

James Purnell: We would not rule anything in or out at this stage. It is for Paul Thornton to recommend on that. He is looking at the general institutional landscape and—in structural and process terms—whichever recommendations he makes are obviously for him to make, rather than for us to pre-judge.
On amendments Nos. 23 and 87, which are about the provision that enables the Secretary of State to issue guidance from time to time to the authority, I want to reassure the hon. Gentleman that we will be open and consultative in our work with the delivery authority. We have tried, in the process of coming to these proposals and those in the White Paper on personal accounts, to involve him and the hon. Member for Yeovil and his colleagues in the development of our policy. We will continue to do that, to hold a range of seminars and to consult people widely. It would not, however, be appropriate to tie down the relationship between the authority and Secretary of State in the detail that is envisaged here. For example, much of the guidance could be fairly trivial and we do not see a strong argument for requiring all of it to be published. 
The bigger concern is about the requirement that such potentially ad hoc guidance be subject to lengthy parliamentary consultation, which would impede the Secretary of State’s ability to offer timely guidance.The relationship between the Government and the authority will be based around policy advice—we should not mistake it for a formal relationship such as that which exists between regulators and the Government. I can reassure the Committee that we will continue to be open in our dealings with the authority, and I hope that that will be enough to dissuade the hon. Member for Eastbourne from pressing the amendments.
Amendments Nos. 22 and 87 would, I think, make it possible for the authority to borrow money, which is slightly at odds with the hon. Gentleman’s earlier amendment, which would restrict the way in which it spends its money. We are trying to tread a path between the two sets of amendments, because we do not think that borrowing money is appropriate at this stage. Grant in aid will be the authority’s sole source of finance and we will set an amount to cover its costs in full. However, at this stage, the authority’s spending will be solely on delivering advice.
During the first stage, expenditure will not require Royal Assent to the second Bill, but will be aimed at developing policy and the legislative requirements in that Bill. In that first stage, the Department’s ability to incur expenditure will be consistent with existing powers. The proposed second Bill will give the detailof our financing and charges policy. We are still consulting on it as part of the White Paper and look forward to the hon. Gentleman’s views as well as those of the hon. Member for Yeovil. However, we think that such matters are for the White Paper and potential next Bill, rather than for the Bill before us.
I hope that I have dealt with what might be described as the procedural amendments. I shall now discuss the points of substance not relating to means-testing, which I shall return to later. One of the key amendments proposed by the hon. Member for Eastbourne would set down in legislation the authority’s objectives. At this stage, that would be inappropriate because we are still consulting on them. Indeed, the delivery authority may want to advise us on those objectives. So we resist the precise intention of the amendment, although he may have tabled it largely in order to debate the issues, which I am happy to do.
Different views were expressed on Second Reading on the cap of £5,000 or £3,000, as the hon. Member for Yeovil said,. The hon. Member for Grantham and Stamford said that there should be no cap at all. Opposition Front-Bench Members made it clear that our proposed cap was too high. The hon. Member for Yeovil asked how we got to the current position, so it may help if I explain. It was agreed that there should be no transfers in or out of personal accounts, which meant that it would be hard to combine, in one product, saving in a personal account with saving in  another pension, if someone wanted to contribute above the minimum rate. We looked at figures suggesting that, for those wanting a replacement rate of 67 per cent., the £3,000 limit would be insufficient for a proportion of our target group. He asked for the evidence base for that. I can tell him that it is on page 113 of the December regulatory impact assessment.
White Papers are intended to be consultative. Our policy of ensuring that our proposals target low and medium earners was set out for the first time in the White Paper and we are open to other views on our argument over contribution levels reaching the replacement rate. The hon. Gentleman is arguing that we should return to a lower cap, but he needs to consider the fact that if people in the target group want to get to a replacement rate of, say, two thirds, they may have to save outside personal accounts and have two pension products.

David Laws: I am grateful to the Minister for setting out how the Government settled on the figure. Will he clarify what upper salary limit they envisage for those who participate in personal accounts? What upper level of income is being aimed at?

James Purnell: Our target is as set out in the White Paper; the system is aimed at people on low and median incomes. People outside that range may decide to save in personal accounts, but they are not the people whom we are targeting. They are well served by the current market, which is successful for them.
 Mr. Waterson rose—

James Purnell: Maybe I can answer the hon. Gentleman’s point before he intervenes. The people at whom we are aiming, as we set out in great detail in the White Paper, are those on low and median incomes. If the hon. Gentleman wishes to ask me where the information is, it is in the White Paper RIA, not theBill RIA.

Nigel Waterson: A dismal failure in the Minister’s experiment in telepathy, there. Perhaps he could stick to allowing interventions and we will make a lot more progress.
I am sure that he was quoting page 113 with total accuracy. Does he accept the figures produced by the Association of British Insurers, which show that almost 95 per cent. of existing pension savers would come within the net if the Minister were to raise the cap to £5,000? If so, does he believe that that would be a good thing?

James Purnell: I have not seen any analysis to question that, and we will consider it as an important piece of evidence when we examine the responses to the consultation on the White Paper. I hope that I have indicated that we have an open mind on the matter. We are genuinely committed to being as consensual as we possibly can with both the hon. Gentleman and the hon. Member for Yeovil, and we will happily discuss the matter with them and others as part of the White Paper consultation.

David Laws: I am grateful to the Minister for giving way again. He may want to return to this question in a second if he needs advice or a calculator, but to save me  some mathematical calculation, will he make clear what level of contributions somebody on median earnings will have to make to breach the old cap of £3,000? How much will they need to contribute to go above that and show that the Government need to go for the higher cap?

James Purnell: The RIA states that at the £3,000 cap the medium earner would get a 67 per cent. benchmark replacement rate about 75 per cent. of the time. At £5,000 it would be closer to certain that a medium earner could achieve the 67 per cent. replacement rate. Those are some numbers, although not necessarily the calculation that the hon. Gentleman asked for. If I can provide him with information that is not on page 113 of the RIA, which I am sure he has read, I will happily do so rather than risk another Dan Quayle moment by trying to calculate rates of return in my head.
To summarise the matter of the £5,000 or £3,000 cap, I hope that I have explained the genesis of our suggestion. It was about taking on board the important point that people made to us—that the automatic enrolment level of contributions was just a minimum and that we should consider encouraging people to contribute above it. Given that there were to be no transfers in or out, that led to an argument for a higher cap than was suggested by the Turner commission. Concerns have been raised and we are happy to consider them as part of the White Paper consultation process.

Nigel Waterson: I can tell that the Minister’s peroration is coming on, but since he is trying hardto talk me out of forcing a Division on amendmentNo. 21, which he has rightly identified as the key amendment in the group, will he confirm that the aim of the personal accounts system will be to increase not only the number of people saving but the overall amount being saved? Does he agree that that is a good yardstick of success or failure?

James Purnell: Yes, we do think there should be an increase in the overall amount being saved and we think that automatic enrolment will bring that about. We are reluctant to place specific targets on that and, like his party, I think that there is a view that targets will need to be looked at in a more flexible way in future. On that general point I certainly agree.
In amendment No. 65, the hon. Member for Yeovil seeks to require the delivery authority in this initial, advisory stage to produce a report on maximising participation. He is quite right to say that maximising participation is critical to the success of the personal accounts scheme. A key conclusion of the Pensions Commission was that a voluntary approach would not be sufficient to raise participation to the levels that we all believe are necessary. Automatic enrolment and, indeed, the compulsory employer contribution, are critical to raising participation rates further. We do agree, however, that automatic enrolment is not sufficient, and we think that issues such as marketing, providing people with good information, running the scheme competently, and launching it with confidence are all important as well. I am not sure that writing a report is absolutely critical to that. We do think, however, that the general issue of maximising participation is important. In that context, people who use the word “mis-selling” need to be careful about  what they mean. We will have a chance to return tothat debate later. We agree with the point behindthe amendment that maximising participation is an important part of the policy.
We have debated levelling down a number of times outside this Committee, and the hon. Member for Eastbourne knows that the starting point of the policy is that it is levelling up. There is nothing in the current legislative framework which requires companies to put any contributions into people’s pensions. By having a compulsory contribution of 3 per cent, we will be levelling up to 3 per cent and, for the first time, all employees will have access to the kind of employer contribution that only those with occupational schemes now enjoy.
The Government want to support good existing provision. I hope that I can deal with this debate relatively quickly by saying yet again that we are pursuing all of the suggestions that the NAPF has made, other than the suggestion for a new and extended form of tax relief, which is a matter not for this Bill but for the Treasury and general tax policy. In the White Paper we proposed another range of measures, such as ensuring that there is a simple exemption scheme, a ban on transfers in or out and a deregulatory review, which will pick up the suggestions that the hon. Member for Yeovil has made. We have not ruled anything in or ruled anything out. There is also the possibility of a slightly longer waiting period for schemes that are making much more generous contributions.
We accept the point that we need to do everything that we can to support good employer provision, but at the end of the day it is for employers to decide whether they want to make provision. We have researched why employers provide schemes. They tell us that they do so as a way of recruiting people and encouraging loyalty, and that they intend by and large to continue to provide those pensions after the introduction of personal accounts.

David Laws: The Minister said that this is levelling up, not levelling down. In saying that, he sounded a bit complacent about the levelling-down risk. Am I not right in saying that Lord Turner’s commission indicated that this was one of the issues that Ministers were particularly concerned about in discussions with the Pensions Commission before settling on their proposals.

James Purnell: That was before my time; I do not want to roam into an area when I was not in post. I do not intend to sound complacent. I am saying that we are looking in detail at a range of new measures to encourage employers who are making contributions. We are looking at a regulatory review, specific measures suggested by the NAPF and a good pensions quality mark.
We are comparing the current regime, in whichthere is no obligation for an employer to make a contribution, to one in which there will be an obligation to make at least a 3 per cent. contribution, if the employee is contributing. That in itself will be a levelling up, to at least 3 per cent, and will potentially help companies that are already providing company pensions, because their competitors will have to make the same contributions. However, beyond that, we want  to look at a wide range of other measures to support employers in providing company pensions. At the end of the day, companies will provide good company pensions if it helps them to attract, retain and reward the people who work for them. That is the fundamental reason why employers say that they intend to continue providing good company pension schemes.
In amendment No. 39, on the gender impact assessment, the hon. Member for Yeovil makes a good point of principle. We think that legally a gender impact assessment will have to be carried out on the next Bill. We recognised the point by doing a gender impact assessment for this Bill, before it was legally necessary. We agree with the general principle, but we think that the assessment should be done by the Department rather than by the delivery authority.
The hon. Member for Eastbourne raised a specific point in relation to Mr. Bee’s comments. My point was that taxes normally take money away from people, whereas means-tested benefits give people more money. If one gave individuals the choice between being on £120 a week with no means-testing or £137.50 with means-testing, most people would choose £137.50. Our debates are sometimes in danger of making it sound as if means-tested benefits reduce the amount of money that people have, but actually they take people out of poverty. That is something that we are very proud of having done.

Nigel Waterson: I can understand why the Minister accentuates that part of the means-testing picture, but surely he accepts the problem in this context, whether or not one calls it a tax. Let us not call it a tax for the present purposes. There are two families, two couples living side by side in identical houses; one family spend their money on extra holidays or a boat or something, while the other save for retirement. The ones who saved can be no better off at the end of the day than the ones who have not saved at all.

James Purnell: That would be true only if they were on 100 per cent. withdrawal rates. As a consequence of the savings credit, the proportion of people on 100 per cent. withdrawal rates has fallen significantly—I think that it is 50 per cent. of what it was under the Conservative Government. If the hon. Gentleman accepts, as I think he does, that there will be some safety net in the system, then there are two basic options. One can either have a very quick withdrawal, but with more people on 100 per cent. withdrawal rates, or a slower withdrawal, but with more people affected by the shallower withdrawal rate. It is a balance between those two issues. That is exactly why we introduced the savings credit. The NIESR, for example, has said that we have achieved the correct balance, or that it is done pretty much optimally, through the regime of the guarantee credit, but with the savings credit rewarding people for their savings. That is a debate to which we shall return on new clause 2.
The hon. Gentleman’s final points were on the comments of Mr. Laslett, our economist in the area. All that he was saying, I understand, was that the private sector should work closely with us to help raise participation rates and that there may well be opportunities for it to do so within personal accounts. That is one of the reasons why we were very keen to have branded funds, for example. There may be potential there.
On generic advice, we are very happy to look at the points made by the Resolution Foundation, and I will make sure that I draw them to the attention of Mr. Otto Thoresen, who is leading the generic advice pilot. One thing is worth saying about what is said by the PPI, by Steve Bee in his article and by the Front-Bench spokesmen. The issue will be resolved through the advice that we can give people in the real world and the decisions that they can make about their saving. We think that we will be able to give people good incentives to save because, as we have made clear, they will be able to have good returns over their working life. We will return to that debate at a later stage, but I hope that the fact that we are providing a pilot to look at generic advice will reassure hon. Members that we understand the points that are being made here and are acting on them.

David Laws: Is the Minister saying—it would comfort me a lot if he was—that before personal accounts come in a system will be introduced that will give free, generic financial advice to the people who will invest in them?

James Purnell: That is exactly the pilot that Otto Thoresen is doing for us and the Treasury. It is an essential part of not just making personal accounts work but helping people with their financial planning overall. I am happy to arrange for the hon. Gentleman to meet Mr. Thoresen so that he can discuss those points with him. I do not want to make any specific commitments before the pilot reports, but those are the areas that the pilot will look at. I hope that that gives him the reassurance that he seeks.
The hon. Member for Eastbourne raised the issue of RU64, which is really the FSA’s responsibility. It is an independent decision for it to take. I understood the points that he made, but the FSA is an independent regulator and it would not be appropriate for us to mandate them from this Committee. I hope that that deals with the points that have been made. It has been an important debate. We share the objectives of most of the amendments. I hope that my comments have reassured hon. Members and that they will not press their amendments. If not, I will encourage my hon. Friends to resist them.

David Laws: I am grateful for the Minister’s response.I shall look forward to getting the answers to my questions on means-testing when we discuss newclause 2.

Nigel Waterson: The lack of caffeine has momentarily spoilt my concentration. I am grateful to the Minister who has laboured long and hard to try to reassure us. I have nothing much more to say on all our relatively minor amendments. The key issue is amendmentNo. 21. I am delighted at the Minister’s reassurance that he has an open mind about the cap. I do not think that I could have left him under any illusion as to how strongly we and others feel on this subject.
The Minister talked about levelling down really being levelling up. We have heard this before at one of the interminable seminars. I did not believe it then, and I certainly do not believe it now. Yes, of course, there is nothing in law at the moment that makes good employers or any employers make the provisions that they do. I accept that. But they do, and that is presumably for the right reasons or for hard-headed reasons of attracting the right employees and keeping them in post in the long run. Equally, there would be nothing to stop them from levelling down in the way that we have described once these reforms come in. In fact there will be a positive incentive.
One interesting survey of companies—perhaps the one to which the Minister referred— suggested that many employers would not make any changes. It subsequently emerged that the human resources directors of those companies had been surveyed, not the finance directors. I have a feeling that all over the country finance directors are doing their sums. On top of all the extra burdens and costs that have been heaped on pension schemes in the lifetime of this Government, finance directors are doing their sums on what may be a potential doubling in the number of participants under auto enrolment.

James Purnell: We have looked into that point. We contacted the chief executives and spoke to the human resources directors only when specifically asked to do so by the company because they were the person responsible for the issue. I am happy to write to the hon. Gentleman setting that out again.

Nigel Waterson: That would be very helpful. However, I do not think that it deals with the genuine concerns expressed not just by the Opposition Members but by people who know about these things in the industry. A lot of research has been carried out by firms such as Deloittes. I am pleased that the Minister will pursue the NAPF’s suggestions as to how we can deal with the issue.
We have an overriding concern, however, about what I call mission creep, and the target group. I was not wholly convinced by what the Minister said about having got that point entirely on board. We need to return to a situation in which the target group is firmly within the Government’s sights, and in those of the delivery authority. I am pleased with the clarification about what Mr. Laslett said the other day. Of course, if that is what he meant, it is a no-brainer; of course, the Government are going to need the help and contribution of the private sector if the system is going to work. I repeat what I said earlier about its being essentially a marketing exercise.
On RU64, let us see what the FSA produces. All that I would say on that is that I am not going to press that amendment either, but it would be a somewhat eccentric result of the reforms if consumers had less protection, rather than more, at the end of the process. 
I return to what I said about the cap, which is an issue on which we see no need to compromise. I will not, on this occasion, invite the Committee to vote on amendment No. 21, but I urge the Minister to have it well in mind—as his mind continues to be open—that consensus matters because people need to know that any Government-in-waiting take broadly the same view of the reforms as the Government of the day. If the impression that that is not the case were to grow, it would be bound to have a serious effect on the likely success of the reforms. I am delighted that the Minister has an open mind, and hope that eventually it will become closed but in the right direction. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 19 ordered to stand part of the Bill.

Clause 20

Management of the authority

Nigel Waterson: I beg to move amendment No. 79, in clause 20, page 21, line 36, leave out ‘the Authority thinks appropriate’ and insert ‘shall be specified in regulations’.

Roger Gale: With this it will be convenient to discuss amendment No. 80, in clause 20, page 21, line 38, leave out subsection (2).

Nigel Waterson: This is a short, pithy clause, but it does not give much away. It is about how the authority is going to manage itself during its short life. Amendment No. 79 would take out the words ‘the Authority thinks appropriate’ and insert
“shall be specified in regulations”.
There is a general point to be made here. In his rather chirpy letter at the beginning of the Committee stage, the Minister talked about producing draft regulations during the Committee stage. Unless I have missed them, I have not seen any, and it would be interesting to know whether we shall see any such regulations for any clause of the Bill before we finish on Thursday this week.
We think that the wording should be made a bit clearer and more obvious. We have said that regulation would be one way of dealing with what the general guidance might be. It seems that the authority would be able to pick and choose, as it thinks appropriate according to the way that the clause is worded, what general guidance it will be subject to and what not.
The second part of that subsection talks about generally accepted principles of good corporate governance, and who can argue with that? However, we then have subsection (2), which we would remove in its entirety by means of amendment No. 80, and which qualifies even that expression. So there is that obligation to follow “good corporate governance” principles, but that obligation is
“subject to guidance falling within subsection (1)(a), and”—
this is the really interesting bit, Mr. Gale—
“applies only to the extent that the principles in question may reasonably be regarded as applicable in relation to a statutory corporation.”
Even if I were not a lawyer, I think that I would recognise a wholly circular argument when I saw one, and I shall be grateful if the Minister will try to explain to us precisely what that gobbledegook means, or whether he agrees with me that we could do a certain amount of judicious pruning of clause 20.

James Purnell: I shall try to reassure the hon. Gentleman. We are trying to replicate the arrangements that have been made for other bodies such as the Office of the Commissioner for Public Appointments, a precedent that he helpfully cited earlier. It is normal in legislation to ask an organisation to have regard both to general principles of good governance—the Higgs report and so on—and to specific guidance set out by Government. The piece of gobbledegook, as the hon. Gentleman called it, is intended to state that where governmental guidance conflicts with corporate governance guidance or sets a higher standard of behaviour, the authority should follow the rules appropriate to non-departmental public bodies rather than the softer test of good corporate practice. I hope that that gives the hon. Gentleman the reassurance that he wants.
The general guidance in question is the extensive guidance issued by the Cabinet Office, the Treasury and the OCPA, which is intended to cover all eventualities for every type of public body. Principles of good corporate governance, on the other hand, include those outlined in the Financial Reporting Council’s combined code, which is based on the Higgs report. It is aimed more widely to include private sector organisations. Both sets of guidance outline extensive standards and practices, many of which will be appropriate to the delivery authority.
As I have said, in some instances the principles of good corporate governance are less strict than the guidance specifically for public bodies. An example that comes to mind is the recruitment process for members of the board. I understand that the combined code states that in certain circumstances there need be no external publication of vacancies, whereas the OCPA’s code of practice requires all vacancies to be advertised externally. The clause sets out the fact that the board will have to obey the stricter test rather than the more general one of good corporate governance.
Putting the general guidelines into regulations would achieve nothing more than the clause as it stands. Additionally, whenever the guidance was changed we would have to haul the hon. Member for Eastbourne up to a Committee Room and pass more regulations, which he would be able to debate. That might give him a different incentive from that which it gives the hon. Member for Yeovil, but I argue that it is not necessary. I hope that I have reassured him that there is a proper control framework, and that he will not press the amendments.

Nigel Waterson: I am most grateful. I am completely reassured—I am reassured out, in fact. I do not know why I had the temerity to table the amendments in the first place. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 20 ordered to stand part of the Bill.

Clause 21

Winding up of the Authority

Question proposed, That the clause stand part of the Bill.

Roger Gale: With this it will be convenient to discuss new clause 4—Winding up of Personal Accounts Delivery Authority—
‘The Authority shall be wound up as soon as the chairman has certified that the Authority has completed the task of setting up the structure for administering personal accounts, and in any event no later than April 2012, and the criteria for such certification shall be specified in regulations.’.

Nigel Waterson: I wish to raise a specific matter on new clause 4, and some interesting issues arise from the mere existence of clause 21. I shall turn to them in a moment.
New clause 4 is, in a sense, the stake through heart of the delivery authority. It may be overkill, which I am sure is what the Minister will say. It is intended to ensure that there will be a moment when the delivery authority stops and the board starts. I have made the point in other contexts that we want to be sure that the delivery authority will not slowly morph into the personal accounts board. The two bodies must tackle distinct issues, different skill sets are needed and they will have completely different roles. One will produce advice and consider the whole design of the scheme and how it will be set up, and the other will be in the business of running it capably and efficiently and meeting the criteria that will presumably be stamped in the next Bill. That was what we wished to deal with in amendment No. 21.
This is to make it absolutely clear that the delivery authority will be wound up as soon as its task has been performed, and no later than April 2012 in any event. Prior to that, the chairman can certify that it has completed its task and its role is at an end. That was in new clause 4.
Clause 21 is interesting in that it is based on meeting the condition in subsection (3), which is that
“as a result of the abandonment or modification of any relevant proposals about personal accounts, it appears to the Secretary of State that it is no longer necessary for the Authority to continue to exist.”
That has the feel of some serious cold feet on the part of the Department. To go to such lengths in a long clause to ensure that the concept of personal accounts can be abandoned at some point in the future—[Interruption.] It is a very important clause. I am keen to draw out from the Minister why the Government are being so ultra-cautious.
To push the issue of consensus drivers back to the Minister, it is important that we should all try to present an image of confidence and enthusiasm about the future of personal accounts if we are to engagethe target audience—or even the vast majority of the population, as the Government now seem to be doing—in them. What have they in mind in using the words abandonment or modification? It would have to be a pretty significant modification to require the winding up of the delivery authority. Do they intend that it should be taken over by some other body? Is it another example of the Treasury’s final control over whether this goes ahead? There have been rumours for some time that the current Chancellor is less than enthusiastic about personal accounts and might take a different line as and when he becomes Prime Minister. I do not expect the Minister to comment on that, but it is important that he tell the Committee what the concerns are. Which issues created the lack of confidence that produced subsection (3)?

James Purnell: The hon. Gentleman really does not need to worry. The subsection is there only out of respect for the Opposition, in that they might not support the personal accounts Bill that we are hoping to introduce. If that Bill did not command the support of Parliament, we would need to wind up the delivery authority, so this represents prudence. We are not taking Parliament for granted—which, as he knows, we do not like to do—but are including the measure so that we will not have to legislate again in order to get rid of the delivery authority.
I do not know whether that gives the hon. Gentleman sufficient reassurance. He also made a more general point about the phasing of the delivery authority. He and I might have slightly different views about how the process will work, so let me set out how we see it. The first of the three stages will be the advisory delivery authority, the second will be for it to have the power of executive authority over certain matters to be described and decided in the next Bill, and then we will go over to the personal accounts board. As we said in the White Paper, we do not plan to wind up the delivery authority until its job is done. There might be some overlap between the authority and the personal accounts board. It would be sensible to expect a large degree of continuity between the delivery authority and the personal accounts board. That does not mean that everybody who works for the authority would work for the board, as different skills might be needed, but we are keen to maintain the expertise of the authority during the transition to the board. That might give it a good incentive to provide us with advice.

Nigel Waterson: I can see the argument for some overlap. After the previous legislation, however, I remember that people who worked for the old pensions regulator and moved to the new regulator found that a different culture had been introduced through the 2004 Act. Does the Minister envisage that employees of the new authority will be TUPE’d across to the board? In the instance to which I just referred, there were concerns about people who had worked for the old regulator having an approach that was different from what was needed for the new, more aggressive regulator.

James Purnell: I think that that issue will be addressed on a case-by-case basis, but there should be some continuity between the authority and the board. We will have plenty of opportunity to debate the arrangement as part of the next Bill that we hope for.
I hope that I have set out the three stages that we expect. It is important that the Secretary of State should wind up the authority, rather than the chairman having the power to wind it up, as we are not sure that that would be the right approach. I hope that that gives the hon. Gentleman the comfort that he needs on that amendment.

Nigel Waterson: I am comforted by that.

Question put and agreed to.

Clause 21 ordered to stand part of the Bill.

Clauses 22 and 23 ordered to stand part of the Bill.

Clause 24

Consequential etc. provision, repeals and revocations

Amendment made: No. 56, in clause 24, page 23,line 25, leave out subsection (3) and insert—
‘(3) The following repeals have effect at the end of the period of 2 months beginning with the day on which this Act is passed—
(a) the repeals in Part 2 of Schedule 7 of the provisions of the Pensions Act 1995 (c. 26) other than paragraphs 19 and 20 of Schedule 4 to that Act;
(b) the repeal in Part 2 of Schedule 7 of paragraph 36 of Schedule 24 to the Civil Partnership Act 2004 (c. 33);
(c) the repeals in Part 3A of Schedule 7.’.—[James Purnell.]

Clause 24, as amended, ordered to stand part of the Bill.

Schedule 7

Repeals and revocations

Amendment made: No. 60, in schedule 7, page 66, line 8, at end insert—
‘Part 3A Additional pension: simplified accrual rates

Citation

Extent of repeal
Social Security Contributions and Benefits Act 1992 (c. 4) 
In section 39— (a) the words “and Schedule 4A” wherever occurring; (b) subsection (3).
In Schedule 4A, in paragraph 1(2) “39(1),”.
Child Support, Pensions and Social Security Act 2000 (c. 19)
Section 35(3).’.
—[James Purnell.]

Schedule 7, as amended, agreed to.

Clauses 25 to 29 ordered to stand part of the Bill.
Further consideration adjourned.—[Mr. Heppell.]

Adjourned accordingly at six minutes to One o’clock till this day at Four o’clock.